Barclays Cisco Systems (CSCO.US): AI Orders Drive Beat and Raise, But Sustainability Questioned
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Barclays maintains an Overweight rating on Cisco Systems (CSCO.US) with a target price of $62, following third-quarter fiscal results that exceeded expectations and prompted raised full-year guidance, though questions remain regarding long-term sustainability.
Cisco reported third-quarter revenue of $14 billion, representing 6% year-over-year growth and surpassing market estimates of $13.8 billion. This outperformance was significantly driven by robust AI orders, which reached $3 billion for the quarter, marking a 50% sequential increase. Consequently, management raised the full-year revenue guidance to a range of $56 to $57 billion, up from the prior $55 to $56 billion.
However, underlying weaknesses persist. Non-AI businesses, such as enterprise networking, saw a 2% year-over-year revenue decline. Additionally, the gross margin contracted slightly to 65.5% due to an unfavorable AI product mix. Earnings per share reached $0.92, beating the expected $0.89.
Barclays highlights that the sustainability of AI orders is a primary risk, as some orders may reflect one-time items or forward-purchasing behavior. Cisco has reiterated its fiscal 2026 AI order target of $10 billion, having already achieved approximately 60% of this goal. The valuation target is based on 18 times projected 2027 earnings of $3.50 per share.